The Financial Stability Board (FSB) has warned that most of the 19 jurisdictions it reviewed lack credible public funding mechanisms to provide emergency liquidity to failing systemic banks, potentially complicating efforts to resolve lenders without resorting to nationalisation.

The watchdog’s thematic review found that only the US, UK, Japan and Hong Kong fully complied with its recommendations on public sector backstop funding. Five jurisdictions were largely compliant, while eight were materially non-compliant and India and Argentina failed to meet the standards.

The review examined whether authorities could provide temporary public funding as a last resort when other sources of liquidity were exhausted. Such arrangements are intended to support the orderly resolution of failing banks, allowing them to be sold or wound down while maintaining critical financial services and limiting taxpayer losses.

Soledad Núñez, deputy governor of Banco de España and chair of the review, said: “Having a credible public sector backstop funding mechanism is essential.” She added that further work was urgently needed to complete implementation of the FSB’s recommendations.

The FSB said fewer than half of the jurisdictions assessed had mechanisms that were clearly defined, capable of providing sufficient liquidity and available quickly enough to meet a bank’s needs during a crisis. Its recommendations call on authorities to address gaps before a failure occurs rather than attempting to establish emergency arrangements under pressure.

Australia, Brazil, China, the European Union, Indonesia, Saudi Arabia, Switzerland and Turkey were among those assessed as materially non-compliant. Canada, Mexico, South Africa, South Korea and Singapore were judged largely compliant.

The findings follow the banking turmoil of 2023, when several US regional banks failed and Switzerland arranged the takeover of Credit Suisse by UBS. The episode demonstrated how quickly lenders can experience severe liquidity stress, prompting renewed scrutiny of whether resolution authorities have the funding needed to manage a failure.

Switzerland’s experience illustrated the distinction between emergency intervention and established arrangements. The Swiss National Bank provided emergency liquidity and loan facilities worth SFr168 billion during the Credit Suisse crisis, but the FSB said a permanent public liquidity backstop remained pending before parliament.

Argentina’s central bank disputed the assessment, saying it did not reflect conditions in the country. A spokesperson said Argentine banks’ capitalisation exceeded the international average and that the central bank met international liquidity standards.

The FSB said it would support member jurisdictions by sharing good practices, reviewing implementation guidance and monitoring progress. Its recommendations form part of international standards for resolving financial institutions without severe disruption to the wider financial system.

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